The next big improvement in manufacturing productivity will come from robotics, according to a new report.

 

A study from the Boston Consulting Group (BCG) projects that investment in industrial robots will accelerate over the next decade, from annual growth that now averages two percent to three percent to around 10 percent annually. As a result, the total cost of manufacturing labor in 2025 could be 16 percent lower, on average, in the world’s 25 largest goods-exporting nations than they would be otherwise. Depending on the industry and country, output per worker could rise by an estimated 10 to 30 percent over and above productivity gains that typically come from other measures, according to BCG.

 

“As labor costs rise around the world, it’s increasingly critical for manufacturers to rapidly take steps to improve their output per worker to stay competitive,” says Harold L. Sirkin, a BCG senior partner and coauthor of the firm’s series on the shifting economics of global manufacturing. “Companies are finding that advances in robotics and other manufacturing technologies offer some of the best opportunities to sharply improve productivity.”

 

There are several reasons behind the expected increased use of robotics. Perhaps the most significant is cost. For example, the cost of an advanced robotic spot welder has come down 27 percent, from an average of $182,000 in 2005 to $133,000 in 2014—and the price is forecast to drop another 22 percent by 2025, BCG expects. At the same time, the performance of robotics systems—speed and flexibility, among other attributes—is likely to continue improving by around five percent each year. The combination of declining price and performance improvements will greatly accelerate the time it takes for robots to become more cost effective than labor in many industries, the firm explains.

 

Manufacturers in some countries are currently installing robots much faster than in others. For instance, China, the U.S., Japan, Germany and South Korea now account for nearly 80 percent of robot purchases, BCG notes. Indeed, according to the International Federation of Robotics, an association of academic and business robotics organizations, China bought approximately 56,000 of the 227,000 industrial robots purchased worldwide in 2014, which is a 54 percent increase from 2013, a BloombergView article reports.

 

In all likelihood, China is just getting started. The government of Guangdong Province, the heart of China’s manufacturing region, recently announced a three-year program to subsidize the purchase of robots at nearly 2,000 of the province’s largest manufacturers. Guangzhou, the provincial capital, aims to have 80 percent of its factories automated by 2020, Adam Minter wrote in BloombergView. The Chinese government’s involvement shouldn’t come as a surprise since it has long wanted to shift the country’s manufacturing focus away from low-quality products that are manually assembled and toward higher-value ones—such as automobiles, household appliances and higher-end consumer electronics—that require the precision of automation, Minter wrote.

 

When it comes to adoption, rates will, of course, vary by industry. So, for example, transportation equipment, computers and electronics, electrical equipment, and machinery industries are expected to account for around 75 percent of advanced robotics installations through 2025, according to BCG’s research. By that time, robots should be able to handle 40 to 45 percent of manufacturing tasks in these industries, the report continues. It also stands to reason that adoption rates will be slower in industries such as food products, plastics, fabricated metal, and wood products where many tasks will remain difficult to automate and labor wages are relatively low.

 

What are your thoughts on how the increased use of robotics will impact manufacturing productivity? Secondly, what will the consequences be for supply chains?